Respond to the following banking and money creation terminology, in terms of whether they are correct or incorrect: Terminology 1: Fractional reserve banking is a system in which banks keep only a percentage of their deposits on reserve a vault cash and deposits at the Fed. Terminology 2: Excess reserves are balances held in vault cash or on deposit with the Fed in excess of required reserves. Terminology 3: The federal funds rate is the interest rate banks charge each other for overnight loans. O All terminologies are correct O Only terminologies 1 and 2 are correct. All terminologies are false Only terminologies 2 and 3 are correct.

Respond to the following banking and money creation terminology, in terms of whether they are correct or incorrect: Terminology 1: Fractional reserve banking is a system in which banks keep only a percentage of their deposits on reserve a vault cash and deposits at the Fed. Terminology 2: Excess reserves are balances held in vault cash or on deposit with the Fed in excess of required reserves. Terminology 3: The federal funds rate is the interest rate banks charge each other for overnight loans. O All terminologies are correct O Only terminologies 1 and 2 are correct. All terminologies are false Only terminologies 2 and 3 are correct.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Page 4 5. Use the following T-account information and the fact that the required reserve ratio in this economy is 0.10 (i.c., 10 %) to answer the questions below (Show your work) Treasury dd T 20 Bonds 600 Bonds Loans to Fed 300 dd 190 B dd 100 T 20 Banks FRN 200 Public 1500 Loans from Banks 850 Banks Cash 60 dd p 1500 dd p P dd B 190 Other Cash 150 Loans to Deposits 100 Bonds 100 Public 850 Loans from Other Bonds 100 Fed 100 Deposits 100 a. What are the Bank Reserves? b. What are the Bank Required Reserves? c. What are the Bank Excess Reserves? d. What is the current Money Supply (MI)? e. If Banks maximized their Loans to the Public, using up all their excess reserves, what will be the new Money Supply? f. The Fed did not like the new Money Supply and sold 40 in Bonds to Banks. After the banks bought the bonds, they have to call in loans from the public. What will be the new Money Supply end up being after the banks made the required changes? g. If the Banks refused the buy the 40 in…
1.6 Suppose that the required reserve ratio is 2 percent, and you deposit $100,000 of currency into Chase Bank. What is the potential increase in deposits in the banking system brought about by your deposit? What is the potential change in the money supply? rese hy is the real-world depos where RR is the required
The table to the right shows hypothetical values, in billions of dollars. Use the table to calculate the M1 and M2 money supply for each year. (Enter your responses rounded to the nearest dollar.) Total M1 Total M2 2009 2010 2011 2012 ・・・ A. Currency B. Money market mutual fund shares C. Saving account deposits D. Money market deposit accounts E. Demand and checkable deposits Small-denomination time deposits F. G. Traveler's checks H. 3-month Treasury bills 2009 920 678 5,300 2010 2011 2012 930 932 937 683 681 690 840 3 1,990 5,580 5,768 5,905 1,210 1,241 1,270 1,325 1,010 982 871 1,133 1,576 3 2 1 2,378 2,440 2,506 990 1,003
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Balance sheet of Bank National Assets Liabilities Vault Cash $1,500 Deposit in Fed $ 500 Loans $4,000 Total Assets $6,000 Deposits $6,000 Total Liabilities $6,000 (1) If r = 10%, how much can the whole banking system expand the money supply? a. $20,000 b. $54,000 c. $40,000 d. $11,000 e. $5,000 (2) If the Fed changed the reserve requirement from 10% to 5% - the bank’s Excess Reserves (ER) would: a. Increase by $300 b. Increase by $1700 c. Decrease by $1400 d. Decrease by $2000 e. Increase by $5700 (3) If the Fed changed the reserve requirement from 10% to 25% the money supply (MS) in the whole banking system could: a. Decrease by $18000 b. Decrease by $54000 c. Increase by $18000 d. Decrease by $36000 e. Increase by $36000 (4) If the Fed changed the reserve requirement from 10% to 39% Bank National would now have ER of: a. -$340 b. -$3,660 c. -$2,340 d. -$500 e. -$250
B. Consider the following data Currency Checkable deposits Savings deposits $1,200 billion $1,500 billion $2,500 billion Banking system's reserve-to-deposit ratio is 30%. Calculate (show your werk) 1. Bank reserves = 2. Monetary base = 3. M1 money supply = %3D 4. Realistic money multiplier =
Suppose that a bank holds $15m in treasury bonds $10m in reserves $30m of checkable deposits $20m of time deposits $6m of capital How much loan does the bank have if we know it doesn't have any other assets or liabilities Suppose that checkable deposits and reserves pay 0 interest The interest rate on treasuries is 3% The loan pays 7% Time deposits pay 5% How much profit does the bank make? What is the bank's return on assets? 3.2% 2.9% 3.7% 2.6%
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8. A bank's "required reserves" are: none of the answers given is correct held as deposits with the Federal Reserve System equal to its transactions deposits equal to its checkable deposits
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